The IPO frenzy in India seems to have lured foreign investors as well to the mix. At the start of November, a closed-door meeting was held between FPIs (Foreign Portfolio Investors) and SEBI (Security Exchange Board of India) to relax some of the IPO rules that prevent FPIs from getting a more significant chunk of the IPO pie.
Here is a rundown of the SEBI rules regarding the same and the demands made by the FPIs.
SEBI Rules on IPO
- A company can decide which anchor investors can invest in the company.
- Further, companies allot preferential shares to anchor investors one day before the IPO officially begins.
- Moreover, SEBI permits that for the first Rs. 250 crores of share sales, there can be 15 anchor investors.
- For every additional Rs. 250 crores, SEBI guidelines allow 10 more investors.
- Typically, in an IPO, 50% of the total share sale goes to institutional investors.
- Moreover, 60% of this 50% goes to anchor investors, domestic or foreign investors.
- Finally, SEBI says domestic mutual funds should get one-third of the total anchor book.
Given this scenario, the FPIs demand that any shares picked up by a mutual fund from its parent company be allocated to the parent company rather than the fund itself. For example, the shares picked up by any of Aberdeen’s mutual funds, which has around 108 mutual funds registered in India, ought to be synced to Aberdeen rather than the mutual fund.
Similarly, US-based Fidelity Investments has around 415 funds registered in this country, while Blackrock Asset Management and Amundi have 157 and 58 funds, respectively.
The request from FPIs is that SEBI calculates the number of anchor investors based on the parent company rather than the various separate mutual funds.
Since many tech IPOs are looking to open, FPIs want to get a larger share than is presently possible. Hence, they have made this appeal to SEBI. We await SEBI’s response on the matter.
Frequently Asked Questions
- What are foreign portfolio investors (FPIs)?
Ans. Foreign portfolio investors are those who invest in securities held in another country. Foreign portfolio investment is a ubiquitous way of investing in a foreign country.
- Who are anchor investors?
Ans. Anchor investors are institutions that get a preferential allotment of shares one day before the company’s IPO.
- How many mutual fund houses are there in India?
Ans. India has around 40 fund houses with no more than 1500 schemes.